BB&T 2009 Annual Report Download - page 143

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 18. Fair Value Disclosures
BB&T carries various assets and liabilities at fair value based on applicable accounting standards. In
addition, BB&T has elected to account for prime residential mortgage and commercial mortgage loans held for
sale at fair value in accordance with applicable accounting standards (the “Fair Value Option”). Accounting
standards have established a framework for measuring fair value and defines fair value as the exchange price that
would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal
or most advantageous market available to the entity in an orderly transaction between market participants.
These standards also established a three level fair value hierarchy that describes the inputs that are used to
measure assets and liabilities.
Level 1
Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and
liabilities. Level 1 assets and liabilities include certain equity securities and derivative contracts that are
traded in an active market.
Level 2
Level 2 asset and liability fair values are based on observable inputs that include: quoted market prices for
similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are
observable in the market and can be corroborated by observable market data for substantially the full term
of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed
securities that are held in the Corporation’s trading and available-for-sale portfolios, loans held for sale,
certain derivative contracts and short-term borrowings.
Level 3
Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models
and/or discounted cash flow methodologies, as well as financial instruments for which the determination of
fair value requires significant management judgment or estimation. These methodologies may result in a
significant portion of the fair value being derived from unobservable data. Level 3 assets and liabilities
include certain trading securities, obligations of state and political subdivisions, non-agency mortgage-backed
securities, covered securities, mortgage servicing rights, venture capital and similar investments as well as
certain derivative contracts.
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